Advanced Search
MyIDEAS: Login

Internal risk models and the estimation of default probabilities

Contents:

Author Info

  • Jens Christensen

Abstract

A major advancement in risk management among large financial institutions has been the development of internal risk models. The models encompass institutions' procedures and techniques for assessing portfolio risk. Commercial bank regulators in the U.S. and abroad have recognized that these "state of the art" risk-management tools provided a framework for addressing important shortfalls of current capital regulations. To that end, a key component of the new rules for bank capital regulation developed under the Basel II agreement allows for banks' internal risk-management systems to be part of the regulatory framework. This is known as the advanced approach and is intended for the largest and most sophisticated banking organizations. ; Key elements of internal risk models used under the advanced approach are the estimated probabilities of default (PDs) for bank assets. For example, a bank using the advanced approach would be required to deliver an estimate of the one-year PD for each corporate exposure. This Economic Letter describes some of the problems involved in estimating the required one-year PDs from banks' internal ratings data and details the approach taken in Christensen, Hansen, and Lando (2004) to address them.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.frbsf.org/publications/economics/letter/2007/el2007-29.html
Download Restriction: no

File URL: http://www.frbsf.org/publications/economics/letter/2007/el2007-29.pdf
Download Restriction: no

Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal FRBSF Economic Letter.

Volume (Year): (2007)
Issue (Month): sep28 ()
Pages:

as in new window
Handle: RePEc:fip:fedfel:y:2007:i:sep28:n:2007-29

Contact details of provider:
Postal: P.O. Box 7702, San Francisco, CA 94120-7702
Phone: (415) 974-2000
Fax: (415) 974-3333
Email:
Web page: http://www.frbsf.org/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Banks and banking ; Risk;

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedfel:y:2007:i:sep28:n:2007-29. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diane Rosenberger).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.